SHANGHAI, China — The word “niche” often dooms brands to a sad fate — one where their products appeal to few and return little in the way of profit. In China, however, things are different.
The right kind of niche brand can have mass appeal in the mainland. And the prospect of reaching a critical mass starts to look very attractive when the local beauty market is worth $57 billion.
The country’s burgeoning consumption culture — or what Beijing in 2015 coined its “consumption upgrade” — has broadened its younger and most lucrative shoppers’ perceptions of value and status. Gone are the days where consumers covet brands on everyone’s tongues; the coolest brand, for China’s post-90’s and younger cognoscenti, is one that no one has heard of yet.
“Consumers aren’t buying [niche brand] lipsticks because they lack beauty products at home,” says Ellie Wang, co-founder and general manager of Little B, lifestyle brand The Beast’s new concept store in Shanghai. “They’re buying them because the colour was spotted on an actress in a TV drama or posted by a celebrity on social media. It’s a status symbol and niche brands feel more special.”
This development is a big opportunity for foreign brands looking to break into the world’s second biggest beauty market. “The younger Chinese consumers — especially well-travelled ones in tier one and two cities — are looking for niche brands,” echoes Elisa Harca, co-founder and Asia chief executive of Shanghai-based digital marketing agency Red Ant. “I really think it’s the moment for them to crack through.”
But to assume that niche brands get an easy ride in China would be naïve. As is the case for any non-native market, navigating the Chinese market is fraught with challenges as well as opportunities, and for smaller brands, the stakes are especially high. Here’s how to get started.
Niche Is What You Make It
“Niche in China does not have to relate to a business size, it’s more about the identity being non-mainstream, bold, expressive and highly specialised,” says Chloé Reuter, founding partner at Shanghai-based Reuter Communications. As such, just about any brand can position itself as exclusive and under the radar, be it a genuinely small independent name or a brand belonging to a multinational giant.
Case in point: self-proclaimed "slow perfumery" Le Labo is still perceived as niche to Chinese shoppers despite being owned by Estée Lauder, says Harca. Similarly, Wang lists Charlotte Tilbury as one of Little B’s best-performing niche brands, though the line is available on Alibaba-owned e-commerce platform Tmall and is widely known in the West.
“[Le Labo] still has that cool edgy vibe, it’s not over-exposed and you can’t find it everywhere,” notes Harca, who says limiting access to products is key. Avoiding travel retail, releasing special edition collections and limiting SKUs are good starting points, though developing a targeted long-term distribution strategy is necessary to sustain a brand’s niche identity.
Choosing a good local partner can help elevate a brand to niche status. For Charlotte Tilbury — which hasn’t set up stores in China due to local regulations clashing with its cruelty-free ethos — partnering up with hip, millennial favourite Little B has benefitted the brand by cultivating a ‘need to know’ identity while allowing it to test demand in the Chinese market.
Though brands should take advantage of the opportunity to appeal to Chinese shoppers with a niche identity, the country’s top beauty consumers are a well-travelled bunch and can be put off by inconsistent marketing. “Brands still need to stay true to their original spirit,” says Wang. “Targeting China shouldn’t mean telling a different story.”
China’s beauty market is no quick win. “Whether niche or not, no brand should ever plan to ‘enter quickly’ into this market. That’s simply a recipe for disaster,” says Reuter.
“It’s important not to rush,” Harca agrees. “I met some of my clients around two years ago and we’re just starting to work with them now.”
It’s very hard for brands to establish [themselves] on every channel and be present and active on every channel.
This doesn’t mean that brands can afford to slack off. Rather, it is important to carefully identify the target audience within the Chinese market and be prepared for the level of investment needed to engage with them pre-launch, and focus on sustaining the momentum thereafter. “It’s an extremely fast-moving market,” says Wang. “Plan for stable growth and lay down a good foundation, but stay agile in targeting what consumers need.”
This rings especially true for a brand’s digital strategy. As Chinese internet companies churn out viral apps at an unprecedented speed, brands may be tempted to stay relevant by establishing themselves on every major platform from Douyin to Kuaishou.
However, Harca recommends that newcomers begin by focusing just on Weibo, WeChat and Xiaohongshu. “It depends on the brand, where their distribution is and how they measure their KPIs and objectives,” she says. For example, Tmall’s direct link to Weibo can be a benefit for brands stocked on the Alibaba-owned e-commerce site.
A focused approach is more sustainable than being everywhere, she says. “It’s very hard for brands to establish [themselves] on every channel and be present and active on every channel.”
Don’t Underestimate Your Budget
Companies that generate buzz in the West will often have a presence on Xiaohongshu — reviews, demos and the like — before they formally enter China, but assuming that a brand can ride on its success outside China is a mistake.
“Brands are always surprised by how expensive China is,” Reuter says. “Whether you’re looking at digital solutions, marketing, engaging celebrities, the numbers are high [but] so is the opportunity.”
In Harca’s experience, even small brands would need to spend a minimum of 2.5 million yuan (around $355,000) in their first 12 months to cover agency fees for content, community and campaign management, advertising costs on WeChat and Weibo and hiring KOLs (the local moniker for influencers.) The latter can be especially costly when compared to influencers in the West, with a “good” KOL charging up to 50,000 yuan for a WeChat post (around $7,100) and 20,000 yuan (around $2,800) for a Weibo post.
Minimums can also limit a niche brand’s activity. Although Weibo has no minimum cost for advertisements, brands must spend over 50,000 yuan (around $7,100) to run ads on WeChat.
According to Wang, niche brands should outline a channel-first strategy to inform their budgets. “Brands need to consider online and offline traffic channels and how much it’ll cost for marketing and brand development to develop a realistic financial plan,” she says.
Choose Your Storefront Wisely
Choosing one or more Chinese partners is one of the most important decisions a small brand will make. This is especially important in beauty: where local regulations prevent cruelty-free players from selling directly to consumers, third party options are a valuable workaround.
“The distribution channel a brand chooses makes the ultimate first impression,” says Wang. “Consumers will automatically associate a brand with its distributor and a good partner can boost a brand’s positioning... It’s all in the details.”
Brands may not make it on to Tmall because they can’t afford the business development costs, or Tmall doesn’t accept them.
Often, Harca says, brands will be fixated on Tmall or JD.com, the two largest e-commerce players in the country. Tmall in particular is popular with international beauty brands — skincare favourite Drunk Elephant recently announced it would be partnering with the platform for its China debut in September.
However, a partnership is not always meant to be. “Brands may not make it on to Tmall because they can’t afford the [business development] costs, or Tmall doesn’t accept them,” she says.
Taking part in Tmall and JD.com’s glitzy shopping festivals can be especially costly for smaller companies, and though it is not a well-trodden path, Harca reckons that brands can still find early success without the help of China’s usual e-commerce suspects by opting with popular luxury beauty stockists Lane Crawford, Space NK, Joyce Beauty, or concept stores such as Little B.
Hosting pop-ups can raise consumer awareness and help brands test the waters. “Brands don’t need to ink a deal [as soon as] they enter the market,” says Wang. “It’s more important to pinpoint the brand’s core customer and the channels they engage with to grow steadily.”
Localise Inside and Out
Considering the cases of consumer backlash that has befallen big players from Dolce & Gabbana to Zara, most brands know better than to enter China without reading up on Chinese culture, be it beauty or business players.
In the long run, brands should of course aim to build a strong Chinese team. “Hiring a trustworthy and professional local team is the key to succeeding in the Chinese market,” says Wang. Doing so will also help niche beauty brands compete with a plethora of local rivals, such as brushmaker Qin Zhi and makeup brands Yes!IC, Jill Leen and Hedone.
However, niche brands without extensive experience operating abroad can sometimes get blinkered. Setting up a Chinese team immediately “is not a life or death [issue], as long as [brands] have done their due diligence and have conversations with partners and get references with partner’s other clients,” says Harca.
“If you immediately create a team on the ground, you [immediately] have a human resource issue,” Harca offers. “Who’s going to manage that team? Are you going to send over someone from your home country or hire someone locally?”
This is why linking arms with a local agency or trade partner can be what some niche brands need to get started, she suggests.
To localise effectively, brands need to go beyond translating existing content or cut-and-paste strategies. They need to carefully and holistically reconsider both their identity and branding strategies through the lens of a Chinese consumer.
“Some western brands have failed after simply implanting their operations exactly as they were overseas, simply assuming that the brand itself is enough,” says Reuter. “It isn’t.”
Additional Reporting by Aijing Wang.
FASHION & BEAUTY
Asics Wants to Outrun Nike and Adidas in China
With the rise of the middle-class lifestyle in China, running is becoming a prominent pass-time among Chinese consumers, and Japanese sports group Asics wants to become the biggest player in the this market. According to Group President and Chief Operating Officer Guangtian Kangren, Asics is aiming to overtake Nike and Adidas to become China’s number one running brand within the next 10 years. At present, China is the group’s fourth largest market after Europe, America and Japan. It is expected that the group's Greater China sales will exceed 40 billion Japanese yen (around $376,400,000) this year, though they are targeting eventual annual revenue from China of above 100 billion yen, with half of that expected to come from e-commerce. (BoF China)
Dior to Show $14,500 Kid Couture in Shanghai
Baby Dior will show a special collection of its couture line to clients in Shanghai this September. The six-year-old couture line is priced from around $9,000 to $14,500 with most of their clientele coming from Asia, and especially China, according to Cordelia de Castellane, the creative director of Baby Dior. According to market research provider Euromonitor, the market for luxury childrenswear has grown steadily for the last five years, with the Asia-Pacific region market alone worth more than $1.2 billion in 2018. Its growth has consistently outpaced that of men’s and womenswear over the past five years, with young middle and upper middle class parents even more willing to splurge on luxuries for their children than for themselves. (SCMP)
Uniqlo to Boost Store China Count and Add More Local Elements to Its Designs
Uniqlo, the Japanese clothing brand owned by Fast Retailing Co. Ltd, will add more Chinese cultural elements to its designs and increase its China store count to over 1,000 within the next three years, said China Chief Executive Pan Ning. Uniqlo already has more than 700 outlets in China and in July, they partnered with the China Soong Ching Ling Foundation to launch a Miao embroidery programme, with the intention of including the traditional craft of the Miao ethnic group into its collections in China. Pan said the idea was to bring meaning to people’s modern lives through a connection with traditional culture, but the plan will also provide over 400 job opportunities for women from the Miao ethnic group in western parts of Central China's Hunan province. (ECNS)
TECH & INNOVATION
Faking Engagement on Video Apps Is Expensive
Every part of the Chinese internet relying on mass user engagement has developed a shadow ecosystem of fake engagement in order to attract advertising revenue, investment and even direct sales. Douyin, China’s version of TikTok, and Kuaishou, Douyin’s biggest Tencent-backed domestic rival, have become major targets of fake traffic generators as they attract increasing attention from advertisers and influencers. But unlike traditional platforms like Weibo, where the number of followers is a key determiner of visibility, these video platforms use algorithm-based content systems, weighing not only followers, but also views and likes. Traffic inflators have responded by mimicking real user behaviour on these platforms, at a hefty price. A “near real” zombie account currently fetches 400 yuan ($57) per 1,000 followers, compared to just 10 yuan per 10,000 zombie followers on Weibo. (Caixin)
Tencent to Challenge Douyin with $1.5 Billion Investment in Kuaishou
Tencent is in talks with short video app Kuaishou, about investing between $1 billion and $1.5 billion in the platform for a total stake of 30 to 40 percent. With its own short video platform Weishi underperforming and Douyin’s market share increasing, Tencent could leverage Kuaishou to compete more effectively with Douyin owner Bytedance. The rumoured investment would push Kuaishou’s valuation up to $26 billion, with insiders estimating 2019 revenue will top 40 billion yuan ($5.68 billion). Already, Tencent has removed restrictions on using Kuaishou within its WeChat app — users can now share videos directly to WeChat’s "Top Stories" feed and their contacts can repost them at will. (Technode)
KOL WeChat Campaign Spend Jumps
Between 2017 and 2018, the number of WeChat KOL campaigns spending over 100,000 yuan (around $14,192) jumped from 40 percent to 58 percent of total KOL investment, reflecting the fact that bigger influencers tend to yield a better return on investment for brands. It also reflects the fact that as the WeChat KOL market is maturing, as view traffic consolidates into fewer, larger accounts. Beauty and clothing were the two segments with the highest ROIs, with KOLs most effectively converting beauty and fashion recommendations into sales. (WalktheChat)
CONSUMER & RETAIL
Government Outlines Consumption Boosting Plans
A meeting of China’s State Council, chaired by Premier Li Keqiang, has outlined numerous measures to boost domestic consumption. Among the moves, upgrading outdated retail infrastructure in the form of either malls or pedestrian streets was named a priority, as was expanding e-commerce further into rural areas and adjusting and expanding the list of retail import goods involved in cross-border e-commerce. Consumption contributes about 60 percent of the country's GDP growth and remains its most powerful growth engine. The government will be more reliant than ever on its big spending consumers to help it ride out its long-term trade war with the US. (Xinhua)
Aldi and Costco Test China's Retail Appetite with Offline Expansion
Aldi opened its first two Chinese locations in June after selling to the country's consumers through Alibaba's Tmall Global e-commerce platform since 2017, while US-based Costco Wholesale — which has had a Tmall presence since 2014 — is set to open its first brick-and-mortar store in China at the end of August. Aldi and Costco will face competition from homegrown chains including Alibaba's Hema stores, which offer a hybrid of online and offline shopping. Foreign hypermarkets and supermarkets in China saw profit margins reach an average of 23.2 percent in 2018, higher than the sector's average, but analysts note the fortunes of foreign retailers in China depend on their ability to adapt to local consumer preferences. (Nikkei Asian Review)
China Retail Sales Soar in June
Official government figures show a 9.8 percent year-on-year increase for the month, higher than the 8.6 percent in May and 8.4 percent for the first half year. Auto sales rose markedly due to deep discounts on older models ahead of stricter emissions standards which took effect on July 1, and the 6.18 shopping festival was credited with boosting cosmetics, jewellery and appliance sales. Online retail goods sales sustained momentum with a robust 21.6 percent year-on-year growth during the first half of the year, accounting for 19.6 per cent of Mainland China’s total retail sales. (Retail News Asia)
POLITICS, ECONOMY, SOCIETY
Shanghai Free Trade Zone Expands
Shanghai’s free trade zone is being expanded to include an area called Lingang on the city’s southeast coast, where Tesla is building its first overseas factory and the world’s largest planetarium is under construction. This doubles Shanghai’s free trade zone from 120 square kilometres to 240 square kilometres, marking the second expansion since the zone was created in September 2013. Nearly 60,000 companies are registered in the zone, a fifth of them with foreign investment totalling $25 billion. Lingang is a relatively new city, built to be a modern example of international competitiveness, and serves as a hub for science and technology, intelligent manufacturing and the government’s “Made in Shanghai” campaign. (Shine)
Forbidden City Revamp Signals China’s New Pride in Its Past
As Beijing’s Forbidden City (known locally as the Palace Museum) approaches its 600th birthday next year, it has been restored to its former glory for all to see. As recently as 2012, only 30 percent of the vast complex was open to the public. Now, 80 percent is accessible — filled with exhibition spaces, stylish restaurants and cafes, bookstores, and highly profitable gift stores, as well as quiet walkways and greenery. The revitalisation has coincided with a broader push to protect and project the country’s cultural heritage — President Xi Jinping has pushed “cultural self-confidence” as one of his signature policies. His government has pumped money into reviving traditional cultural practices, including calling on the Palace Museum to better showcase its holdings. (NYT)
China Lists 86 Patriotic Shows TV Stations Should Air for Its 70th Birthday
The shows on the list laud the achievements of the Chinese Communist Party, which established the republic on October 1, 1949 following the civil war. In addition to the list of celebratory TV shows, the National Radio and Television Administration also issued guidelines on what broadcasters should not air in that time frame, including any historical period shows or idol dramas that are “relatively entertaining.” The new guidelines are another move by the Chinese government to tighten censorship over the entertainment industry, particularly in a year that is filled with sensitive anniversaries for the party. (Quartz)
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